On the 12th November, the European Banking Authority published the Peer Review on the Implementation of the EBA Guidelines on Stress-Testing.The aim of this review was to assess and compare the effectiveness of the supervisory activities related to the review of credit institutions' own stress testing framework across the EU, as well as the implementation of related provisions by competent authorities.The report shows that National Competent Authorities (NCAs) largely comply with the three assessed guidelines.
The Peer Review focused on methods and examples of best practice, and covered:
- stress-testing governance structures and their use;
- possible methodologies including the appropriate severity of scenarios and potential mitigating measures during stress conditions, and
- the overall impact of risk on institutions.
The following conclusions emerge from the review:
- all NCAs resource models have benefits. However, irrespective of the model, designated stress testing technical experts should be involved;
- stress test instructions at national level are currently spread over various supervisory manuals, hence the need for centralised documents;
- NCAs often focus on the few largest banks in the respective jurisdictions and devote far less attention to other banks;
- the incorporation of stress testing into the Supervisory Review and Evaluation Process and the joint decision process is handled differently across NCAs; and
- very few NCAs require reverse stress testing, and when it is required, it is often as part of a recovery and resolution plan.